A new report from Global Relay, a leading provider of electronic communication compliance and archiving solutions, spotlights the challenges financial services firms face in maintaining compliance with regulatory standards amid increasing scrutiny of recordkeeping and communication practices.
According to the fintech provider’s second annual Industry Insights Report: Compliant Communication 2024, 65 percent of financial institutions are struggling to enforce compliant electronic communication policies.
Despite a 15 percent year-over-year decrease, WhatsApp bans are still the top risk-mitigating measure among firms, with 43 percent using them to keep a handle on internal business communications. Additionally, four-fifths (79 percent) of firms are increasingly adopting communication surveillance technology to detect misconduct and culture risk.
Asset managers, broker-dealers, and investment banks are all grappling with the WhatsApp conundrum,” Alex Viall, chief strategy officer for Global Relay, said in a statement. “Many firms know they ultimately will have to enable this type of communication to stay competitive.”
Despite the widespread use of WhatsApp bans, only 50 percent of respondents believe these bans will actually hold up under regulatory scrutiny, particularly given the stepped-up enforcement actions by the SEC and the CFTC. Over the past year, these regulators have issued substantial fines for non-compliant off-channel communications, including $81 million in penalties against 16 firms by the SEC in a February enforcement blitz.
Ensuring staff compliance with electronic communication rules is a thorn in many firms’ sides, the report said, with nearly two-thirds (65 percent) flagging it as an ongoing issue. Still, there’s been progress: only 24 percent of respondents reported experiencing difficulties in monitoring all communication channels, down from 54 percent last year.
“Financial institutions are reacting in response to the substantial regulatory penalties,” Viall said. “They have got the message and are implementing strategic compliant solutions that ensure the capture, storage, and monitoring of all essential business communication channels. This is no easy task.”
He noted that compliance and risk officers are increasingly recognizing the impracticality of ham-handed bans on social media channels and the use of personal mobile devices. While many firms are still going through growing pains in their policies and processes, Viall said all are prepared to show stakeholders and regulators how they intend to manage off-channel communications.
Touching on AI, the report also found 72 percent of global firms plan to introduce AI into their compliance workflows within the next year, though interest in North America lags behind. Contrasting with a more proactive stance from European and other global counterparts, 65 percent of North American firms reported no near-term plans to adopt AI.
Last June, the SEC under Gary Gensler proposed new rules around the use of AI in brokerages, and AI was also on the agenda during a recent virtual public meeting.
Finra also weighed in on AI in May, updating its guidelines to include chatbot communications and AI-generated content.
“Investment from Envestnet will accelerate roadmaps at Vestmark,” said Freedom Dumlao of Vestmark.
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